EUR/USD rises as Trump takes U-turn on EU tariffs
- EUR/USD moves higher to near 1.1420 as Trump’s erratic policy announcements have renewed concerns over the USD’s credibility.
- According to revised estimates, the German economy rose at a robust pace of 0.4% in the first quarter of the year.
- This week, investors will focus on the inflation data from both the EU and the US.
EUR/USD jumps above 1.1400 during European trading hours on Monday, the highest level seen this month. The major currency pair gains as the US Dollar (USD) falters on erratic statements coming from Washington regarding tariff policies. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, slides below 99.00.
Over the weekend, Trump suspended his decision to impose flat 50% tariffs on the European Union (EU) until July 9, after the old continent agreed to advance trade negotiations quickly and urged for some time to reach a good deal.
European Commission President Ursula von der Leyen said in a post on X on Sunday that she had a "good" phone call with Trump and that the EU was ready to “advance talks swiftly and decisively." "To reach a good deal, we would need the time until July 9," she added.
On Friday, US President Trump threatened to impose 50% tariffs on imports from the EU in a post on Truth.Social, which were expected to come into effect on June 1. “Our discussions with them are going nowhere! Therefore, I am recommending a straight 50% tariff on the European Union, starting on June 1, 2025,” Trump wrote.
A quick de-escalation in trade tensions between economies situated on both sides of the Atlantic has provided relief to their equity markets and the Euro (EU), but has put the credibility of the US Dollar under suspicion again.
The Greenback has substantially suffered in past few months as events such as ever-changing Trump’s tariff policies, threats to remove Federal Reserve’s (Fed) Chair Jerome Powell and a new tax cut and spending bill that is expected to increase already ballooning nation’s debt by $3.8 trillion have dampened USD’s safe-haven appeal. Increasing doubts over the Greenback’s credibility have also increased the Euro’s appeal. “We think the euro is continuing to benefit from being the most liquid alternative to the dollar,” ING said.
Daily digest market movers: EUR/USD gains on upbeat revised German Q1 GDP data
- Signs of strength in the domestic region have also benefited the Euro, besides being an alternative to the US Dollar and the rising hopes of a potential EU-US trade deal. The major currency gains as revised Q1 German Gross Domestic Product (GDP) data showed that the economy grew at a faster pace of 0.4%, compared to the preliminary estimates and the prior release of 0.2%.
- Upbeat German Q1 GDP data has diminished fears of an economic contraction on a yearly basis after declining for two straight years. Analysts at Deutsche Bank Research stated upbeat Q1 GDP figures indicate that the German economy has gained enough momentum to avoid stagnation this year. Experts guided that the economy would continue the positive trend in the second half of the year despite the potential impact of Trump’s tariff policy.
- On the monetary policy front, European Central Bank (ECB) officials have expressed optimism that inflationary pressures could return to the 2% target this year, due to which traders have remained increasingly confident that the central bank will cut interest rates again in June’s meeting.
- The comments from ECB policymaker and Governor of the Bank of Greece Yannis Stournaras, published in a Greek news media on Friday, indicated that he is comfortable with traders’ dovish bets for the policy meeting in June. "I expect one more interest rate cut in June and then a pause," Stournaras said.
- This week, the EUR/USD pair will be influenced by the US Personal Consumption Expenditure Price index (PCE) data for April and the Harmonized Index of Consumer Prices (HICP) data from major countries of the EU for May, which will be published on Friday.
Technical Analysis: EUR/USD refreshes almost a month high above 1.1400
EUR/USD posts a fresh almost a month high near 1.1420 at the start of the week. The near-term outlook of the pair is bullish as it holds the 20-day Exponential Moving Average (EMA), which is around 1.1270.
The 14-period Relative Strength Index (RSI) rises to near 60.00. Bulls would come into action if the RSI breaks above the 60.00 level.
Looking up, the April 21 high of 1.1475 will be the major resistance for the pair. Conversely, the September 25 high of 1.1215 will be a key support for the Euro bulls.
Euro FAQs
The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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